Key things to consider in a sale of part


07 September 2020

When land is sold, it’s fairly common practice for the landowner to sell only a part of what they own, keeping an adjoining piece or sometimes pieces of land in their ownership.

There are a whole range of reasons as to why this might be desirable, however in almost every case the newly sold parcel of land will maintain some kind of relationship with its parent. That relationship could be as simple as a right to use a shared driveway, or it could be a complex collection of rights and responsibilities necessary for the construction of a housing development comprising hundreds of houses.

Whatever the situation, getting this relationship right is undoubtedly essential. With poor planning, any number of undesirable outcomes are possible, all of which can adversely affect the newly sold land or the retained land. Access to the public highway may be lost, essential rights to use pipes, cables or sewers may be overlooked, and undesirable or competing land uses may arise.

The law will seldom operate to rescue either a buyer or seller from such a position. There is no standard ‘toolbox’ of rights or responsibilities that automatically take effect on a sale of land. Whether buying or selling, each party should carefully consider what rights and responsibilities will be necessary to realise their future plans for their land, even if those plans might not reach fruition until much further into the future. What follows is a summary of some of the main issues to consider when negotiating a sale of part, either buying or selling.

Rights

In most cases, one or both parties will need the permanent right to do something on the land adjacent to the piece of land that they own. There are lots of kinds of rights that might be required with, with some of the most common being:

  • rights of way
  • rights to connect into pipes, cables, sewers or other conduits
  • rights to park car or other vehicles
  • rights of access for carrying out maintenance.

This might seem like a fairly simple matter to begin with - if you need a right to use your new neighbour’s driveway then surely that’s easy enough to arrange? Perhaps, but the devil is in the detail. Who will be responsible for maintaining the driveway? Do both parties actually have to carry out physical repairs or will one party be responsible for that with the other just making a financial contribution? Should there be a limit on the types of vehicle that can use the access way? Can the access way be used all day every day or just certain times? These kinds of conditions and limitations are all practical matters that need to be carefully considered and agreed before the sale takes place.

Rights are a particularly useful tool for the seller as they provide a means of future-proofing that land they keep in their ownership. A seller should always consider the two following questions.

  1. What do I currently do on the land that I’m selling that I will need to continue doing once the sale goes through?
  2. What rights can I impose now that might be needed for the future use or even development of the land I’m retaining?

Restrictions 

It might be desirable for one of the parties to prevent the other from doing something with their new land. Typically, these restrictions are in favour of the seller and are designed to protect whatever it is they intend to do with their retained land, however, restrictions can be for the benefit of either the seller or the buyer. Some of the most common include:

  • a restriction on the use of the land
  • a prohibition on building on the land
  • a prohibition against using an access with particular kinds of vehicle
  • a restriction on storing/using hazardous substances on the land.

A good example is the stable owner who intends to sell one of their paddocks and requires that the paddock cannot be used for equestrian purposes, thereby preventing the emergence of competing business. Restrictions such as these also bind subsequent landowners and therefore offer long-term assurances. It is worth bearing in mind however that restrictions are, by their very nature, unattractive to the party agreeing to be bound by them. Their effectiveness as a negotiation tool is therefore entirely dependent upon the intentions and respective bargaining strength of the parties.

Obligations

As a counter-point to restrictions, it might be desirable for one of the parties to compel the other to do something with their new land. These kinds of agreements are characterised by the requirement for the bound party to make some kind of expenditure or financial payment for the benefit of the other land. Common examples include:

  • an obligation to build and maintain a fence along a boundary
  • an obligation to pay a maintenance contribution
  • an obligation to pay a contribution towards estate services
  • an obligation to conduct landscaping.

Unsurprisingly, such obligations may seems fairly unattractive as far as the party agreeing to be bound by them is concerned, however, they are most often employed as a means of achieving fairness between parties. Establishing equal maintenance contributions towards a shared sewer is a good example of this. Unlike restrictions, these kinds of obligations do not automatically bind subsequent landowners so it’s necessary to ensure that an appropriate mechanism is included in the documentation to ensure that they are properly covered. Taking legal advice in the first instance will go a long way towards avoiding disputes in the future.

Ransom strips

Sometimes what you’re not buying or selling can be just as important as what you are buying or selling.

Consider the scenario where a buyer acquires a field with only one means of access to the public highway. If the seller retains a thin strip of land between that highway and the land being bought then the buyer will have no legal right to access their new property. Two significant consequences arise as a result.

Firstly, the value of the newly purchased land goes down because nobody wants to purchase land they can’t access. Secondly, the value of the retained strip goes up because the buyer either needs to gain access over that strip or they need to find an alternative access in order to restore value to their newly purchased land. Effectively the buyer is held to ransom. It doesn’t matter if the retained strip is six inches or six feet wide, the legal effect is the same.

That said, the importance of a sale plan that accurately shows the land being transferred cannot be overstated; it’s all too easy for a ransom strip to be inadvertently created simply because the land identified in the sale plan differs from the actual position on the ground.

Ransom strips are often considered a trap to be avoided, and rightly so, however they can also be used strategically as a means of preserving future value in land as long as they are properly documented and all relevant rights and obligations are included.

Summary

A sale of land can be an exciting undertaking for both buyer and seller, however neither party should lose sight of the details as poor execution can undermine the best of intentions with potentially disastrous results. The negotiation of the sale is the parties’ opportunity to carefully consider what they need legally, practically, and financially to achieve their intended outcomes and it shouldn’t be wasted.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2020.